The California standards impose limits on the carbon-intensity of fuels sold within the state based upon a “lifecycle analysis” of what it takes to produce each type of fuel and bring it to market. This approach immediately raises a red flag under the Dormant Commerce Clause because it has the effect of penalizing out-of-state producers. Under California’s standards, two identical fuels will be rated differently based upon where they were processed and how they are transported to market. Not only did the California Air Resources Board implement the fuel standards in ways that appear to be facially discriminatory, it trumpeted these effects when promulgating its rules. Among other things, CARB claimed that reducing the volume of fuels imported from other states would, itself, advance the state’s regulatory goals and explained how encouraging the construction of in-state biorefineries would increase California’s tax base and increase local employment.

California’s approach to climate regulation, like climate-related energy policies in many other states, raise serious Dormant Commerce Clause problems. California claims it is necessary to account for greenhouse gas emissions from fuel production and transportation because, if it did not, limits on in-state emissions could cause producers to shift production to other jurisdictions. This may be true, but it’s not clear it’s enough to satisfy Dormant Commerce Clause concerns. In order to justify otherwise discriminatory policies, states are supposed to show they have no non-discriminatory alternative to achieve in-state benefits. Yet in the case of climate change, there are no in-state climate benefits from California’s policies because California is not capable of reducing emissions enough to have a meaningful effect on future projections of climate change. And there’s the rub. Unless courts back off traditional enforcement of the Dormant Commerce Clause, state climate policies may be in a bind. And somewhat ironically, the justices who seem most willing to back away from the Dormant Commerce Clause are those justices — Scalia and Thomas — who are usually least sympathetic to environmental concerns.

A federal district court initially found that portions of the California rules were impermissibly discriminatory. A divided panel of the U.S. Court of Appeals for the Ninth Circuit reversed in what was not a particularly strong opinion. A petition for rehearing en banc was denied, but yielded a forceful dissent.

Although the Supreme Court refused to hear the case now, it may get another chance. The Ninth Circuit turned away fuel producers’ claims that California’s fuel rules were facially discriminatory or impermissibly extraterritorial in their reach, but remanded the case back to the district court for more factual findings further consideration of other dormant commerce clause claims. This alone may have induced the Court to take pass. Moreover, Rocky Mountain Farmers Union case is but one of several challenges to state-level climate change policies working their way through the federal court system. Thus the justices may have decided it is better to let these issues percolate before accepting review. Whatever their reason for rejecting Rocky Mountain Farmers Union, the underlying issues will return to the Court, at which point we will see whether the justices are willing to stretch the traditional doctrine to accommodate climate change concerns.

For those interested in more background, here’s a draft paper on how the dormant commerce clause may limit state climate policies. (It’s a work in progress, so comments welcome.) For other views see these posts on the Legal Planet blog by Richard Frank, Dan Farber, and Rhead Enion.

Jonathan H. Adler teaches courses in constitutional, administrative, and environmental law at the Case Western University School of Law, where he is the inaugural Johan Verheij Memorial Professor of Law and Director of the Center for Business Law and Regulation.

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